How To Backtest#

Backtesting is a vital step in validating your trading strategies using historical data. With LumiBot, you can backtest strategies across various data sources such as Yahoo Finance, Polygon.io, ThetaData, or even your own custom CSV files. This guide will walk you through each step of backtesting, explain the data sources, and introduce the files that LumiBot generates during backtesting.

Note

Why Backtest?

Backtesting allows you to see how your strategies would have performed in the past, helping you identify weaknesses or strengths before deploying them in live markets.

Installing LumiBot#

Before you begin, make sure LumiBot is installed on your machine. You can install LumiBot using the following command:

pip install lumibot

To upgrade to the latest version of LumiBot, run:

pip install lumibot --upgrade

Once installed, you can use an IDE like Visual Studio Code (VS Code) or PyCharm to write and test your code.

Tip

Quick Setup for VS Code

Download and install Visual Studio Code from the official website: https://code.visualstudio.com/.
Open VS Code and install the Python extension by going to Extensions and searching for Python.
Create a new project folder for LumiBot.
Open a terminal in VS Code and install LumiBot using pip install lumibot.
You’re ready to start backtesting with LumiBot!

Choosing a Data Source#

LumiBot supports several data sources for backtesting, each suited for different asset types and backtesting needs. Here’s an overview of the available sources:

1. Yahoo Finance

Free stock and ETF data for daily trading backtests.
Suitable for longer-term strategies but not ideal for intraday backtesting.

For more details, see the Yahoo Backtesting section.

2. Polygon.io

Offers intraday and end-of-day data for stocks, options, forex, and cryptocurrency.
Provides up to two years of free data; paid plans offer more advanced features and faster data retrieval.

Important

Get Your API Key from Polygon.io

You can get an API key at Polygon.io. Please use the coupon code ‘LUMI10’ for 10% off!

For more details, see the Polygon.io Backtesting section.

3. ThetaData

Designed for users looking to backtest stock and options trading strategies.
Provides options pricing and other securities.

Important

Get Your ThetaData Account

You can get a username and password at thetadata.net. Please use the coupon code ‘LUMI’ for 10% off!

For more details, see the ThetaData Backtesting section.

4. Pandas (CSV or Other Custom Data)

Allows for full flexibility by using your own custom datasets (e.g., CSV, database exports).
Ideal for advanced users but requires more manual configuration.

For more details, see the Pandas Backtesting section.

Running a Backtest with Polygon.io#

Once you’ve selected your data source and built your strategy, you can run your backtest using the run_backtest function. This function requires:

Data source: (e.g., Yahoo, Polygon.io, ThetaData, or Pandas)
Start and end dates: The period you want to test.
Additional parameters: Strategy-specific parameters.

Here’s an example of a backtest using Polygon.io:

Important

You Must Use Your Polygon.io API Key

Make sure to replace “YOUR_POLYGON_API_KEY” with your actual API key from Polygon.io for the backtest to work.

from datetime import datetime
from lumibot.backtesting import PolygonDataBacktesting
from lumibot.strategies import Strategy

class MyStrategy(Strategy):
    parameters = {
        "symbol": "AAPL",
    }

    def initialize(self):
        self.sleeptime = "1D"  # Sleep for 1 day between iterations

    def on_trading_iteration(self):
        if self.first_iteration:
            symbol = self.parameters["symbol"]
            price = self.get_last_price(symbol)
            qty = self.portfolio_value / price
            order = self.create_order(symbol, quantity=qty, side="buy")
            self.submit_order(order)

if __name__ == "__main__":
    polygon_api_key = "YOUR_POLYGON_API_KEY"  # Replace with your actual Polygon.io API key
    backtesting_start = datetime(2023, 1, 1)
    backtesting_end = datetime(2023, 5, 1)
    result = MyStrategy.run_backtest(
        PolygonDataBacktesting,
        backtesting_start,
        backtesting_end,
        benchmark_asset="SPY",
        polygon_api_key=polygon_api_key  # Pass the Polygon.io API key here
    )

For more information about running backtests, refer to the Backtesting Function section.

Files Generated from Backtesting#

When you run a backtest in LumiBot, several important files are generated. These files provide detailed insights into the performance and behavior of the strategy. Each file is crucial for understanding different aspects of your strategy’s execution.

Tearsheet HTML#

LumiBot generates a detailed Tearsheet HTML file that provides visual and statistical analysis of your strategy’s performance. The tear sheet includes:

Equity curve
Performance metrics (e.g., Sharpe ratio, drawdown)
Benchmark comparisons

For more information, see the Tearsheet HTML section.

Trades Files#

The Trades File logs every trade executed during the backtest, including:

The asset traded
The quantity of the trade
The price at which the trade was executed
The timestamp of the trade

This file is essential for reviewing your strategy’s trading behavior and identifying any potential issues or optimizations.

For more information on how to interpret the Trades Files, see the Trades Files section.

Indicators Files#

The Indicators File logs any technical indicators used in your strategy, such as moving averages, RSI, or custom indicators. This file helps you understand how your strategy responded to market conditions based on specific indicators.

For more information, see the Indicators Files section.

Conclusion#

LumiBot’s backtesting feature provides a powerful framework for validating your strategies across multiple data sources. By following this guide, you can quickly set up your environment, choose a data source, and begin backtesting with confidence.

For further details on each data source and the files generated during backtesting, refer to the individual sections listed above.